Do you think niche/boutique fund administration will be able to survive?

Smaller fund administrators may face more challenges than their larger counterparts in the future. Typically, the larger fund administrators question the viability of the smaller companies, while the niche administrators are confident of their ability not only to survive but to also continue to attract new business.

How this debate will end is an open question as the impact of increased regulation and compliance coupled with the ever-increasing need to keep updating technology continues.

Certainly now that the larger administrators are keen to attract hedge fund companies, minimum requirements may be waived, putting even more pressure on the smaller fund administrators to remain viable.

With increasing demand on technology and infrastructure provided by administrators, smaller fund administrators will see immense pressure, believes David Morrissey at SEI. “Those who do not have the existing tools to provide services now essential to the market, such as independent record keeping, daily reporting and transparency, while also not having the investment budget available to attain such technology, will have a challenging time in this market,” he concludes.

Omnium’s John Buckley thinks fund administrators that serve very specific asset classes and strategies may be able to carve out a niche business. “However, given the demand for greater transparency from investors, Omnium believes it is unlikely that small administrators with limited capabilities will be able to survive without a strong technology offering,” says Buckley.

Liam McNiffe at Bank of Ireland Securities Services believes fund administrators who were regarded as or regarded themselves as niche or boutique no longer exist. “They have been acquired by another administrator or they have invested heavily in their technology enabling them compete with the larger players and cease to be ‘niche’ or ‘boutique’,” says McNiffe.

Third-party administrators, with a unique bird’s eye view of fund data, should be ideally placed to produce the independent reporting investors, boards, auditors and regulators now require, notes Hans Hufschmid at GlobeOp. “However, only a handful have the platform, processes and scale necessary. We therefore expect more consolidation in the fund administration sector. The process is already under way,” he says.

“The strong will get stronger. The weak cannot survive without quality service, scale and advanced technology. We anticipate more mergers and lift-outs in the coming year,” concludes Hufschmid.

Stephen Castree at Equinoxe also thinks there is likely to be consolidation of the smaller administrator. “Those with strong experience and high-quality systems and service will thrive, but some of the administrators without these may find it challenging to compete,” he says.

Looking at the industry from a different angle is Akshaya Bhargava at Butterfield Fulcrum. He says there will always be a market for niche/boutique fund administration because there will always be smaller hedge funds looking for high-touch, personal service. However, he questions these smaller administrators’ ability to invest sufficiently in the “technology that will help them keep pace with the changes in the industry and clients’ more complex servicing/reporting requirements.”

“Because the overall needs of the hedge fund community are changing so quickly, there will be a need for service providers that are agile and adaptable to that change. There is so much in flux right now and the larger fund administrators are challenged to adapt legacy platforms to meet new service level demands,” says Jonathan White at Viteos Fund Services

At Apex, Peter Hughes believes there is always room for the niche administrator. “They add value to smaller clients that many of the commoditised administrators don’t want as clients. These fund managers need to be able to start and grow a business and without service providers offering good service for a fair price, these talented managers wouldn’t be able to enter the business,” declares Hughes.

“We started as a boutique administrator but have kept the same service standards and now deliver this globally to institutional clients who appreciate the model just as much as the smaller start-up clients,” he concludes.

Stuart Feffer at LaCrosse Global Fund Services says that as a boutique administrator “we can offer a level of client service and operational capabilities that the larger factory firms could never match. It may not be for everyone but there will always be managers and investors prepared to pay a small premium for what firms like ours can offer.”

John McCann at Trinity agrees. “With the size of start-ups and new funds reducing significantly, we feel boutique administration can not only survive but thrive.”

Kleinwort Benson’s Joseph Truelove has a similar view. “Yes, there will always be clients who want to derive costs savings from working with a small provider that has a lower-cost base. These businesses do have key main dependencies typically but can also offer a very highly personalised service,” he says.

Richard Ernesti at Citi believes niche fund administrators that can demonstrate robust processes and controls as well as flexibility in meeting client demands are the most likely to survive.

Citco’s Oliver Scully agrees, although he thinks the cost of participation has increased and the chances of survival will be defined by the ability to provide niche expertise.

“Niche service providers will always be required for funds below critical mass and this is one reason behind the recent addition of new administrators to the marketplace,” says David Aldrich at BNY Mellon.